Intro: Do you feel like you were meant to have a kick-ass career as a hair stylist? Like you got into this industry to make big things happen?
Maybe you’re struggling to build a solid base and want some stability. Maybe you know social media is important, but it feels like a waste of time because you aren’t seeing any results. Maybe you’ve already had some amazing success but are craving more. Maybe you’re ready to truly enjoy the freedom and flexibility this industry has to offer.
Cutting and coloring skills will only get you so far, but to build a lifelong career as a wealthy stylist, it takes business skills and a serious marketing strategy. When you’re ready to quit just working in your business and start working on it, join us here where we share real success stories from real stylists.
I’m Britt Seva, social media and marketing strategist just for hair stylists, and this is the Thriving Stylist Podcast.
Britt Seva: What is up and welcome back to the Thriving Stylist Podcast. I’m your host Britt Seva and this week we’re going to do a little bit of a continuation from last week’s episode.
So last week I chose to tackle profits, profit margin, we talked a little bit about perceived value, essentially keeping as much of your money as you possibly can, which is what all of us are looking for, right? And that was kind of a tag onto the episode I released a few weeks back where I talked about the impending recession or correction or whatever you want to call it, the inflation that’s happening in our economy and the potential downfall.
So, as I stepped into last week’s episode, I had wanted to talk about basically all things budget and profit margin, but the reality is to talk about all things, we would need like 20 hours. It’s just not enough time. So cramming it into a 20-minute podcast episode is probably a little bit ambitious.
This week I want to dive in and pour more into salon owner’s profit, and even if you’re not an owner or you never want to be one, this episode, I think, is going to be eye-opening because I’m very well aware of the stigma that salon owners keep all the money. And I’m also very aware of the idea that we don’t want salon owners taking our money, right? There’s this idea that like, “Well, why does a salon owner get a piece? That’s not fair.”
So I want to unravel all of that and explain to you what salon profit margins look like, what is possible, where most salons get into hot water. We’re going to talk about booth rental margin. We’ll talk about employee-based salon margin and essentially how to make good money as a salon owner, because it’s trickier than you think.
Let’s first start by dismantling that concept that salon owners are a) taking all the money and b) that salon owners shouldn’t get a piece of the stylist’s money or whatever that mindset is. You know what I’m talking about? Different people phrase it different ways. Like we want to keep as big a slice of our own pie as possible. Totally understandable, like that is just rational. If you don’t, there’s something wrong with you, like that is the business mindset. The idea is to keep as much of the profit as you possibly can as an individual and I think it’s naive for any of us to think that anybody is looking out for others more than they’re looking out for number one. Survival instinct is ingrained in us from the beginning of time, like survivalism is at the core of all of us, so all of us want best for ourselves. Most definitely.
I think that there’s this concept that stylists feel like, “Well, why should you get a piece of the money that I make? I’m doing all the services. I’m doing all the work, I’m serving all of the clients. I’m just a booth renter here. I’m doing my own thing. You should not get a piece of what I produce. If you want to make money, you can take your own clients.” And while I understand that mentality, it is extremely dangerous and it also doesn’t make a whole lot of sense.
Nobody goes into business hoping to create a huge pile of debt. Can I get an amen on that? Like nobody does. Nobody’s like, “You know what I want to do? I want to open a business and go about $80,000 in debt.” Nobody says that. Everybody goes in to make profit, your salon owners included.
What I think happens quite often is a lot of salon owners are what? Former stylists, themselves, or current stylists who are doing hair and also own a salon. Most people have no idea how expensive it is to own and operate a salon. And when I say expensive, I’m talking about both of our resources that we have in this lifetime, which are time and money, but those are our two greatest resources, always dwindling down. We’re always negotiating with both of them. And when you’re a salon owner, you must invest a lot of time and money in order to make that business fly.
And so, as we, as stylists say, “Well, the salon owner shouldn’t get any of what I do.” Well, where do you intend to do hair then? What do you think the salon owner should get? Just nothing?
You as a salon owner want to make money. Shouldn’t they want to make money as well? Every business in the world today is designed to create a lifestyle for the person who owns it. And if we say, “Well, I don’t want the owner to make money. That’s why I’m going to go to a studio suite,” y’all know, studio suites are making like millions of dollars, right? I mean, you want to look at where the money is going. Those who own studio suite franchises are raking in the dough.
So the idea of like, “If I go to a studio suite, I’ll keep more of my own money,” no. I mean, it doesn’t matter if you’re renting a studio, you’re renting a salon chair, somebody’s making money off of it. That’s how the rental model works.
Now, what about when we are a commission stylist and we’re like, “Okay, well, I get all that. But I feel like it’s unfair that the salon owner takes 60% and I get 40,” or “the salon owner takes 70% and I get 30, like, oh my gosh, why do they get the lion’s share?” Well, we’re going to talk about all of those numbers today because what the salon owner keeps is not what they actually make. What they get to keep is called profit of profit, so P of P.
When I look at compensation structure, I look at it as P of P, but I don’t think most salon consultants do. And so that’s why I’m Thriving Leadership, that’s the language we speak, because that is how our industry works. It is set up a bit differently in that it’s essentially a bunch of freelancers who come together and choose to work as a collective. But the irony is like everybody in the building has to build their own book of business.
That is fairly unusual in an industry. You could look at car dealerships, well, everybody’s responsible for making their own sales. Well, yeah, but the car dealerships have their own reputation and people decide they want to buy a Toyota Corolla, so they come wandering in off the street.
Our model is quite unique. It is very different, and so because of that, we have to look at things like P of P instead of looking at overall budgets or what is standard or anything like that. It is different for every salon. And so that’s what I want to talk a bit about today.
When you go into Thrivers Society, you have this whole slew of calculators, and we’re going to work through a handful of them today. Some that are just in Thrivers Society and some that are just in Thriving Leadership.
I want to start with the Take-Home Pay Calculator for salon owners. This is available for anybody in Thrivers Society and this is going to be like a tag on to what we talked about last week.
Last week I said, “You know what, if there is a booth renter and they decide that they want to take home $10,000, what does that look like?” We ran through those numbers last week.
So let’s say the salon owner wants to make $7,000 a month. That’s how much they want to take home and currently they’re taking clients four days a week.
Now let’s say the rent owed on the building itself is $2,000 a month. Great. Let’s say the average cost of monthly salon expenses is let’s say a thousand, let’s say $1,500. Let’s say this is a booth rental salon and this salon owner’s just paying for water, electric, maybe a laundry service, snacks, and amenities in the salon, something like that.
Let’s say they have no additional payroll expense. There’s no assistant or anything like that. And let’s say that on average, they’re collecting $200 a week in rent from three renters, so that’s $600 coming in every single week. So for this salon owner to take home $7,000, they need to produce $9,849 behind the chair, so that’s $616 a day.
So this salon owner is not raking in the cash. They have to be making a surplus of revenue in order to be able to cover the cost of running the salon and this additional booth rent.
Here’s where salon owners who booth rent come out ahead. So if instead of charging each of those booth renters $200, you’re charging $400, well, now you’ve increased your collection by double, and now you only need to be producing $6,153 behind the chair to take home $7,000.
Now that profit margin is starting to be created, but what if you’re like, “Well, I don’t want to work behind the chair at all anymore”? So then the cost of booth rent would be where your revenue comes in.
How do you get there? Let’s say your market can only withstand $300 a week in rent. So then if you have eight booth renters, each paying $300 a week in rent, you’re collecting $2,400 a week in rent. That would allow you to make the $7,000 in take-home pay or profits, right? Some of it would go back into the salon that you’re looking to make, even if you didn’t take clients behind the chair, right? But you have to be using tools like this in order to see when that profit will turn and how much you need to be charging in order to get there, right?
But a lot of us have these people who work part-time and do all these other things so they’re only paying $150 or what—and all of that is fine, but you need to find the breakeven point of how much you need to be collecting in rent in order to be taking home what you want to be taking.
And most booth rental salon owners aren’t there. What they’re taking home is whatever they produce behind the chair, right? They’re not taking home $10,000 a month in booth rents. Some are, and those who are making profit and they’re actually doing okay, but those who aren’t getting there.
Now, for those of you who are stylists who are like, “Well, I don’t ever want my salon owner to make $10,000 a month, I think that’s not fair.” Do you yourself want to make $10,000 a month? “Well, yeah, but I don’t think it’s fair that the salon owner does it without having to take clients.” Salon owners who are generating $10,000 a month in booth rents aren’t owners, they’re leaders. And if you want to know the difference between a weightbearing owner and a leader, you can go back. I have a podcast episode all about it, I talk about it in Thriving Leadership, there’s a radical difference. People don’t make $10,000 a month profit as a salon owner by chance. It doesn’t happen randomly because the salon’s in a great location. It happens strategically by somebody who chooses to lead and that is their salary for leading, not bossing people around.
There’s a huge difference between being the boss, being the owner, and being the leader, but there is a price to pay to have somebody who leads, and those who are paying those higher rental rates and are working so hard to get into those incredible salons aren’t stressed about what profit the salon owner is making because they’re so happy to be there, right?
So we have to find that breakeven point and that helps us to determine what does our booth rental rate need to be so that we come out ahead, so that we have that margin that we’re looking for.
Let’s go to employee-based for a second. One of the things I talk about is profit of profit, and this is a calculation I think that very few people discuss. It’s what the Thriving Leadership compensation model is based on. And P of P is essentially what works in our industry because we’re a little bit different in the sense that we have people who are doing clients independently, building their own book of business within a larger book of business, like the salon book of business.
Now I want to be clear. I don’t think salon owners own clients. I don’t think people own people so that doesn’t work. But those who are in your building are building their own clienteles, and then you have this clientele of stylists who are choosing to work for you. It’s almost like a pyramid scheme in a way, right? But we don’t think of our industry like that. But in a way, it is. There’s a salon owner at the top. Then they hire eight stylists and those eight stylists each have to find 80 people.
Have you ever thought of it like that? It kind of is.
And so when we look at compensation, it’s a bit tricky. So the reason I look at P of P is it ensures that there is a margin to pay with. When we don’t look at profit of profit, we just start throwing money out the door. If there is no profit, you can’t afford to pay a person.
Do you realize that? There is no money to pay with, there is no profit, so you’re going to go into business debt in order to pay a person and it happens all the time.
Let’s look at when that might happen.
Let’s say you have a baby stylist in your salon and they’re doing $1,500 a month in services. Okay. We know this person. Let’s say they’re doing 10 color clients a month and they are not getting health insurance. They’re not getting retirement savings. It’s just a very simple employee-based model.
Let’s say that it costs the salon owner $2,000 a month in lease on the space. Let’s say there’s eight stations in the salon. The monthly utilities are 600 bucks. The monthly cleaning costs are 400. Monthly laundry is 200, cost of amenities is 300, monthly cost of retail and stocking and backbar is 700. Salon administrative roles monthly, I put 500. That could be if you have salon assistants or receptionist, or even if you take a salary yourself, that would go under the administrative cost. And then monthly credit card processing fees, I put it 300.
Based on the realities of our business, it costs you $1,138 to have this stylist in your space, period. For them to walk in your door every single month, it costs you as the salon owner, $1,138. Based on the fact that they’re doing 10 color clients, that is their cost and all of the other pieces that go into having this person.
Given the fact that it costs you $1,138 to have them in the space, you have no profit margin. You’re actually losing money having this person in your building. So based on my calculator, you can afford to pay them $2 an hour if they work five days a week or $4 an hour if they work three days a week or $6 an hour if they work two days a week. That’s not even minimum wage anywhere.
That goes to tell you, you can’t afford to have this person. It’s not possible. You could pay them 26% commission if they are a commissioned employee, or you could pay any of the hourly rates that I just rattled off. If you were to do this, the salon would lose money every single year on this person. You would lose over $300 at least if you’re paying them $2 an hour, which you can’t afford to.
If you’re paying minimum wage, you would lose, I don’t know, $12,000 a year on this person, something like that, a lot of money. So essentially this employee is not even a breakeven. You can’t have them.
Now, this was running this person through a 30% P of P. That essentially is the most profit that I can get for a salon owner today for the most part. Now there’s some mega salons who can pull higher than that, but the average salon, 30% P of P is pretty exceptional.
So let’s run this same stylist through a 20% P of P, which I think is where most salons actually run. So 20% profit of profit means the salon is taking less and the employees are making more.
So same employee, $1,500 a month in services, 10 color clients a month. All of the other realities of the business let’s imagine that they stay the same.
So it still costs us $1,138 to have them in the building, but we’re looking at a 20% P of P now instead of a 30% P of P, meaning the stylist makes more and the salon makes less. So in this scenario, the stylist is now able to be paid $3 an hour if they work five days a week or $7 an hour if they work two days. Their commission rate would be 32% and the salon would lose over a thousand dollars if they were paying them $3 an hour, which we know legally you can’t.
Again, you would lose tens of thousands of dollars having this person in the building. At a 20% P of P or a 30% P of P. So whether you pay the team member more, whether you pay the team member less, it’s irrelevant. You can’t afford to have this person and this is why so many stylists struggled. They’re like, “I want to pour back into the industry. I want to have assistants. I want to nurture somebody and let them grow.” But friend, you can’t afford to pay them and that’s why we have to look at things like this.
Let’s run this calculator again, but let’s do it with a high performer. So let’s actually say that this stylist is doing $15,000 a month. So instead of $1,500, let’s say it’s $15,000. Let’s keep this easy and to do the $15,000 a month. Let’s say they are doing a hundred color clients a month. So before we had $1,500, 10 color clients a month, now we have $15,000, a hundred color clients a month. That makes sense in essence.
Let’s run this first stylist through at 20% P of P, meaning the stylist makes more, the salon takes less. All the other realities of the business are the same. It costs us $4,195 to have this person in the building. What? This stylist makes 10 times more than the other one I just mentioned, but it costs less than four times more to have them in the building.
And that’s why with the higher producers, you have that higher profit margin. And that’s why people do things like sliding commission scales and stuff like that because you have a margin you can pay with, right, it’s there. So to have this high producer in your building, it costs $4,195 just to have them in your space. That means at a 20% P of P, the employee annual gross income would be $110,436. You could pay them $58 an hour, if they were five days a week, $72 an hour if they were four, $96 an hour if they were three, $144 an hour if they were two. Like if somebody was doing $15,000 a month only working two days a week, you could absolutely pay them $144 an hour. It would be no problem. You could pay them a ridiculous hourly wage or you could do a 61% commission split. With all of that, the salon still profits $20,000 a year on this person. So they still get the lion’s share, but everything is paid for, and you’re making $20,000 a year on this person.
Now let’s run the same person through a 30% P of P.
So again, $15,000 a month in service, a hundred color clients a month. So at a 30% P of P, the employee now takes home $96,264 and the salon profits $32,760. This still allows the stylist to be making 53% commissions, $50 an hour at five days a week, $63 an hour at four days a week, $84 an hour at three days a week, or $125 an hour at two days a week. Everybody still comes out pretty happy, but the salon is taking home more and that’s why I say, ideally there is a 30% P of P going on in all salons.
Now when stylists listen to this and they’re like coming out and they’re like, “No, we want that additional 10%.” When I say salon annual profit, I don’t know about y’all, when my business is profitable, I pour back in.
Look at an event like Thrivers Live. Does everybody know Thrivers Live runs at a loss every single year? We’ve never made a profit on Thrivers Live. We bring in hundreds of thousands of dollars in revenue from the tickets, but this year’s Thrivers Live cost us over a million. So there’s always a loss. But when my business is running profitable, I can put on really incredible events for our community. I can do amazing holiday parties for my team. I can afford to bring in additional things that we couldn’t afford before.
So great leaders don’t say more profit equals all mine, right? That’s evil. That’s owner stuff. That’s boss stuff. Leaders don’t run like that. And so when you are a leader, it takes money to make money. It takes money to create an incredible opportunity. And so when we look at running at a 30% P of P and you want to be an elite salon in your community, that’s what it looks like.
The trick is when you’re running a 30% P of P it’s great for your high producers, it’s really challenging for your low producers. So then we start to do silly things like “Well, okay, I’ll do 20% P of P for my low producers and 30% P for P for my high.” Oh, so once I’m a high producer, I get screwed. Nope, that won’t work.
And this is where things get tricked and this is why high producers get what’s the R word? Resentful. Because we look at them as like, “Well, sorry that the newer stylists can’t make enough money, so I rely on you,” and this is how we as owners get into really vulnerable positions because you need those high producers to make your margin. And so what we have to do is use tools like these calculators. (These ones are in Thriving Leadership.) You have to use tools like these calculators and make really serious decisions about your business. You can’t afford to have a stylist in your room that’s doing $1,500 a month in services. You can’t afford it. You’ll literally lose tens of thousands of dollars a year. You don’t have the money for it.
You need to be bringing in people or having a training program or fostering an environment where you’re at least at break even on these new stylists, hopefully some kind of profits coming in. For some of these people, it’s like, you gotta get them at $3,000 a month or they don’t roll.
But what I don’t suggest you do is that you do a higher P of P for your higher producers and lower for your baby stylists, because then your higher producers 100% will become resentful. How could they not?
So when I say that, some of you’re like, “Oh, so no sliding commission split.” Nope. All of these calculators, you can have a sliding commission split, but what you can’t shift is that profit margin piece.
This is a really different way of looking at budgets and compensation and profit margin and that kind of thing for salon owners. This is really the tip of the iceberg, like I said, I could do a 20-hour podcast on profit and finance probably, but it’s just a different way of thinking about the money and thinking about salon potential.
I hope this little tip of the iceberg’s been helpful. You can learn more about Thriving Leadership by heading to thrivingstylist.com. If you have any more questions about this, you can leave me a rating or review on iTunes, ask me your questions, and I will do my best to dive deeper. Sometimes I don’t know what y’all want exactly more of, but if you can give me some direct action, I will do my best to dive in deeper.
And as I always like to say so much love, happy business building, and I’ll see you on the next one.
